Do The Russell Funds Add Value For Investors?

November 2, 2015

by Larry Swedroe

My series evaluating the performance of the market’s most prominent actively managed mutual fund families continues with an in-depth analysis of the Russell family of funds.

Why Russell? It is a highly prominent provider of investment and pension fund consulting. Nonetheless, in February, the firm ranked last (out of 48) on Barron’s annual list of best-performing mutual fund families for the latest 10-year period. For the latest five-year period, Russell was ranked 51st (out of 56 fund families). And in the one-year rankings, based on 2014 performance, the firm placed 54th (out of 65 fund families), though one-year performance should be treated as anecdotal in nature.

Despite the poor performance, Morningstar reports that as of July 31, 2015, Russell had over $47 billion in assets under management in its mutual funds, an increase of about 10% from 2011.

The impact of the firm’s investor returns goes well beyond the $47 billion it has under management, as Russell is one of the largest players in the world of investment consulting. It provides investment consulting to pension plans and other institutional investors. It also offers advice on selecting the best active managers to investment advisors. In fact, its website proclaims: “For the fifth year in a row, Russell was ranked as the largest manager of worldwide institutional outsourced assets out of 79 firms in the Pensions & Investments’ survey issued in July 2015. Russell’s expanding investment outsourcing solutions has more than $117.3 billion in institutional outsourced assets around the globe.” It also states: “For the fourth year in a row, Russell was reported as the largest manager of institutional outsourced assets based on the AUM from its fully discretionary clients.”

It adds: “In 2013, for the third year in a row, Russell was named as an aiCIO Industry Innovation Award winner. The 2013 award named Russell the winner in the Investment Outsourcing category for asset managers and servicers. Notably, Russell was recognized for its in-house implementation capabilities and robust investment and sales teams.” Finally, it proclaims: “For the fifth year in a row, Russell was ranked as one of the top-five largest consultants. Ranking is based on worldwide assets under advisement (AUA) by the 2014 Pensions & Investments Consultant Directory.”

Given the assets Russell has under management and advisement, it’s clear that its sales teams have done a great job. But what about the investment results? How has the performance of the Russell funds stacked up against the performance of comparable passively managed funds? Have its funds been generating alpha when judged against appropriate risk-adjusted benchmarks? I’ll answer these questions in my analysis.

I’ll also see if the results achieve the firm’s stated goals: “We’re a global asset manager with a unique set of capabilities essential to managing total portfolio solutions. Our goal? Increasing the probability that investors will reach their desired outcomes.”

To keep the list to a manageable number of funds and to ensure that I examine long-term results through full economic cycles, I will analyze the 15-year period ending June 30, 2015. Furthermore, I’ll use the lowest-cost shares available for the full period when more than one class of fund is available. In cases where Russell has more than one fund in an asset class, I’ll use the average return of those funds in our comparison.

The table below shows the performance of seven funds offered by Russell in three domestic asset classes and two international asset classes. The funds are placed in the asset class based on Morningstar’s investment style categorization.

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